FRANKFURT (MNI) – A Greek default can and should be avoided,
European Central Bank President Jean-Claude Trichet said in an interview
with French periodical L’Express released Wednesday.

The comments come amid rising talk that the second Greek bailout
terms will be changed to include a much larger haircut on Greek debt
than originally agreed on July 21.

“The commitments made by Greece and those made by all the European
countries on 21 July should enable the scenario [of a default] to be
avoided, and we have always warned the governments against it,” Trichet
said.

In a bid to keep up pressure on governments to avoid a default,
Trichet stressed in a separate interview reported on Tuesday that the
ECB has not changed its position of excluding any defaulted government
bonds from its refinancing operations.

“We cannot accept the securities of a state in default, even for a
short period of time, as collateral for the refinancing of banks without
an appropriate credit enhancement,” Trichet told German daily Die Welt
in that interview. “Our position has not changed.”

Trichet said that “a very large adjustment is necessary in Greece
to correct the errors of the past in the greater interests of the
country and in the interests of growth and sustainable job creation.”

On Tuesday, the Troika presented its latest review on the progress
made in Greece and despite noting some shortcomings has recommended the
release of the next aid tranche of E8 billion. The Eurogroup and the
IMF’s Executive Board have yet to approve the conclusions before money
can be released.

Trichet also called on Slovakia to ratify the agreement of 21 July
that would see the Eurozone’s EFSF bailout fund become more flexible and
urged all governments to make the most effective use of the fund.

“Then, all of the States must stand ready to react and apply fully
the flexibility that is laid down in their agreements of 21 July. They
need to be able to increase the effectiveness of the stability fund
through recourse to a ‘leveraging’ effect,” Trichet said.

–Frankfurt Bureau tel.: +49-69-720 142, email: jtreeck@marketnews.com

[TOPICS: MT$$$$,M$$EC$,M$X$$$,M$$CR$]